May 15, 2009

By any other name

Rather than stopping the rise of the oceans, President Barack Obama’s push for greenhouse gas regulations is turning into another all-you-can-eat porkfest. As Rep. Henry Waxman, D-Calif., prepares to introduce a climate bill in the House Energy and Commerce Committee he chairs, big businesses and their well-connected lobbyists are lining up with the hope of getting rich off these regulations.

An early winner looks to be the power companies, represented in Washington by the Edison Electric Institute. U.S. automakers, soon to be controlled in part by the labor unions who so generously fund the Democratic Party, are also among a handful of likely beneficiaries of this legislation.

Waxman’s bill, set to be drafted in committee next week, is centered on a cap-and-trade mechanism for curbing greenhouse gas emissions. Under cap-and-trade, the government requires many GHG emitters, such as power plants and factories, to “pay for” their emissions with special credits, with government controlling the supply.More...If an emitter needs more credits, he buys them on the open market from someone—another emitter or a dealer—who has excess credits. The question for lawmakers: How to allocate the credits originally. Environmentalists want Washington to auction them all. Affected industries want credits given away.

Considering the anti-business and pro-environment rhetoric of ruling Democrats, you might expect all businesses would have to pay for all emissions. But the rule of thumb in Washington—at least as true in Barack Obama and Nancy Pelosi’s Washington as it was in George W. Bush and Tom DeLay’s Washington—is that no important bill passes unless a well-connected special interest benefits from it. Following the rule, climate change legislation is starting to look like the stimulus bill: a buffet of handouts.

Currently, Waxman’s bill gives away about half the credits, with most free credits going to the power industry. Edison Electric, the trade group representing these companies, has endorsed this bill.

It’s unsurprising the power companies should get their way. Data compiled by the Center for Responsive Politics show that the electric utility industry’s political action committees contributed $12.3 million to candidates last election—more than the PACs of the oil and gas, commercial bank, investment, real estate, or telecom industries—and nearly as much as all defense PACs.

Last quarter, the Edison Electric Institute spent $2.6 million on lobbying, placing it 28th overall, just ahead of defense giant Boeing. The group retained 17 outside lobbying firms and employed at least 11 in-house lobbyists.

Early drafts of Waxman’s bill will also include GHG credit giveaways to some manufacturers that are “trade sensitive”—such as steelmakers and carmakers. These companies, of course, are also very well connected politically.

Then there’s the issue of how government should spend auction proceeds. General Electric, bailed out automakers promising green cars, and wind and solar investors are at the front of the queue to dig into this new trough of porkbarrel funds.

Cap-and-giveaway is not a matter of toothless regulation as much as an instance of regulatory robbery. The companies being given free credits are not being given free passes from new regulations—they are actually being given free money.

The price the government charges for GHG credits doesn’t determine the price at which the credits will sell on the open market. A free GHG credit is not worth zero just as a World Series ticket won in a sweepstakes is not worth zero. The price will be set by supply (how many total credits, auctioned or given away, are in circulation) and demand (the difficulty of reducing emissions and the fine for over-emitting).

So, when government gives credits to electric companies, it is simply giving money to those companies while making it more expensive for everyone else to do business. The utilities could sell the free credits unless Congress prohibits selling some credits, which would defeat half the purpose of cap-and-trade.

Waxman’s current bill, supported by power companies, will be touted as a industry-environment compromise, making some observers believe it is a moderate regulation. In truth, it is just as burdensome on the end-user—consumers and electricity users—but instead of government pocketing all of these added costs, some businesses will get a cut.

Anyone believing these greenhouse gas restrictions are about stopping the oceans’ rise should watch closely the lobbying on this climate change bill, and you’ll see that it’s more about enriching the companies with the best political connections.